FSA Statement about “read and understood” declarations

Surely it is acceptable and indeed advisable for on-line traders to ask customers to tick a box to confirm they have read and understood the small print? “Not necessarily” says the FSA in guidance whose relevance extends well beyond financial services, as Joseph Kitchingham ticks the box to confirm.

Topic: Contract

Who: The Financial Services Authority

When: June 2010

Where: UK

Law stated as at: 16 June 2010

What happened:

The On-Line Partnership Limited used a standard terms of business contract that required customers to confirm that they had read and understood its terms. The original confirmation clause read as follows:

‘I confirm that I have received, read and understood this agreement and agree to the terms set out within.’

After starting enforcement action, on 22 January 2009, the Financial Services Authority (“FSA”) published an undertaking that the On-Line Partnership Limited would amend this confirmation clause following the FSA’s assertion that the original wording, as above, was in breach of the Unfair Terms in Contracts Regulations 1999 (the “Regulations”).

Issue

The clause was deemed unfair under Regulation 5 of the Regulations, which states:

“Firms … must also give consumers a proper opportunity to read all of the terms of the contract. Consumers should check the details of the contracts they enter into. But a contract term requiring consumers to declare that they have read and understood the terms of the contract is likely to be unfair because it binds consumers to terms which, in practice, they may not have any real awareness of.”

The OFT undertaking stated that declarations that the consumer has read and/or understood the agreement give rise to special concerns because the Regulations implement an EU Directive. This is important because the inclusion of a declaration of this kind effectively requires consumers to say these conditions have been met, whether they have or not. This tends to defeat the purpose of the Directive, and as such becomes open to serious objection.

Action

In line with the Office of Fair Trading (‘OFT’) publication, Unfair Contract Terms Guidance (the ‘OFT Guidance’), The On-Line Partnership Limited undertook to amend the term in its contracts to give a clear warning to consumers that they should read and understand the terms before signing them and that consumers should ask questions if they do not understand the terms.

“This is our standard client agreement upon which we intend to rely. For your own benefit and protection you should read these terms carefully before signing them. If you do not understand any point please ask for further information”

The FSA said that, like The On-Line Partnership’s new term, agreements should warn customers that they should consult with a company about anything in an agreement that they do not understand.

Why this matters:

Companies should not reject customer complaints because they ticked a box saying they had read and understood an unfair contract, regulator the Financial Services Authority (FSA) has said.

A key concern is that firms should not rely on a ‘have read and understood declaration’ to reject a consumer’s complaint. A consumer may complain, for example, about a particular contract term, claiming that it is unfair. The firm should then investigate the consumer’s complaint and decide whether the term is unfair. If it is, the appropriate action to deal with any detriment suffered by the consumer should be taken.

The firm should not argue that, since the consumer has signed a declaration to say that they have read and understood the contract, they are therefore not now entitled to complain about the fairness of a term in the contract or how it is/will be applied.

Conclusion

Whether any declaration is in fact fair will depend on how it is drafted and how it is used in practice.

Firms should make sure that any declarations they draft could not have an unfair effect in the future, even if they have no immediate intention of using them unfairly. Firms should not rely on declarations as a way to avoid their obligations to consumers.

It is preferable for ‘have read and understood declarations’ to give a clear warning to consumers that they should read and understand terms before ticking a box and that consumers should ask questions if they do not understand any terms.

The FSA said that it is perfectly fair for companies to ask consumers to declare some things, but only those that are within their direct experience, for example, age, gender or address.

It is widely acknowledged that the views of the FSA and the OFT reflect the best practices that some websites have followed for several years, but others and perhaps the majority, whether or not they are in the financial services sector, should take heed of this guidance and amend their online sign-up/purchase flows accordingly..